Kazakhstan. President Sets Target for 50% of Drugs Consumed in Kazakhstan to Be Produced Nationally by 2014

In a move redolent of Russian state efforts of recent years, Kazakhstan is about to embark on a charm offensive to persuade multinational drug companies to start producing medicines locally, in order to keep costs low.

IHS Global Insight Perspective

Significance

Kazakhstan's president has called on the government to ensure that half of all medicines bought in the country are also made there by 2014.

Implications

The President wants assurances soon that foreign drug makers will invest in local production, as a means of bringing down medicine prices. Some 90% of drugs sold in Kazakhstan are imported, which has contributed to massive price rises for patients.

Outlook

Too few assurances that investment costs will be repaid with strong future sales will dissuade most drug companies from opening Kazakh production facilities in the short term, but with annual pharmaceutical market sales slowly approaching US$1 billion, this Central Asian market does have long-term potential as a regional powerhouse.

Kazakhstan's President Nursultan Nazarbayev has taken decisive action on the country's medicine supply, setting a new government goal for increasing the proportion of drugs produced locally. Speaking at the twelfth annual extraordinary congress of his political party, Nazarbayev said that by 2014 at least 50% of all medicines consumed in Kazakhstan should be produced within the country. According to the Kazinform news agency, the President also confirmed that 90% of Kazakhstan's pharmaceutical supplies are currently imported from other countries.

In order to have any hope of reaching such an ambitious goal in five years' time, the President has encouraged pharmaceutical companies from both inside and outside of the country to begin constructing drug making factories in Kazakhstan. Indeed, national newspaper Kazakhstan Today reports that Nazarbayev is expecting companies to decide on the likelihood of building new factories within a month.

The new policy announcement comes shortly after the release of figures suggesting that the high proportion of imports in Kazakhstan's pharmaceutical market has caused the price of medicines to rise steadily, prompting a national drug spend of US$795 million last year (see Kazakhstan: 29 April 2009: Kazakhstan Spends US$795 mil. on Pharmaceuticals in 2008, Market Dominated by Imports). Although spending on medicines is expected to decrease over the remainder of 2009, the weakness of the national currency following a recent devaluation means that patients will continually be faced with higher medical bills if the majority of available prescriptions are initially purchased from factories overseas.

Outlook and Implications

The President's new policy is a step up from the proposal made last month by the Ministry of Health to incite multinational pharmaceutical companies to establish production bases in Kazakhstan (see Kazakhstan: 3 April 2009: Health Ministry Launches Plan to Boost Innovative Pharmaceutical Production in Kazakhstan). Predictions of massive increases in drug prices by the end of this year appear to have forced an escalation in the government's sense of urgency for reform, but the question remains as to how effective this latest policy is likely to be (see Kazakhstan: 20 March 2009: Currency Devaluation Could See Imported Drug Prices in Kazakhstan Jump 25% Y/Y in 2009). As yet, there are few details of how the government would entice foreign drug companies to build factories on Kazakh soil, when they would be required to do so by, and whether there would be any penalties enforced on those that choose to continue selling their treatments to Kazakhstan from elsewhere.

In Russia, similar appeals have been made by the government in recent years, with the added warning that companies who choose not to open factories in Russia would be barred from the country's drug reimbursement scheme. It quickly became apparent, however, that the opaque and risky nature of the market still deterred many companies from establishing a direct presence in Russia, and the country's own pharmaceutical industry was too small to supply the reimbursement scheme alone. A parallel situation exists in Kazakhstan and, despite advantages such as lower production and labour costs, much still needs to be done to convince foreign drug makers that local supply chains are secure, and that national revenues will justify the cost of installing new production facilities.